Egypt Default Swaps Drop Most Since 2011 on $12 Billion Arab Aid

Egypt’s credit risk headed for the biggest drop in more than two years and bonds gained after Saudi Arabia, the United Arab Emirates and Kuwait pledged $12 billion of aid and as the new premier builds a government.

Five-year credit default swaps, which protect investors against potential non-payment of debt, fell 142 basis points to 675 as of 5:04 p.m. in Cairo, according to data provider CMA. That’s a 17 percent decline, the steepest on a closing basis since February 2011. The yield on the government’s benchmark 5.75 percent bonds due April 2020 tumbled 68 basis points to 8.71 percent, set for the lowest close in more than three weeks.

Egyptian shares also advanced after the aid pledges, which came on the same day that Hazem El-Beblawi was selected as interim prime minister to oversee a transitional government after the army removed President Mohamed Mursi a week ago. El-Beblawi, a former finance minister, and interim President Adly Mansour are confronting growing violence since the ouster, including the July 8 killing of dozens of the Mursi’s supporters by the army.

“Gulf aid providers now see the deadlock in Egypt as broken,” Mona Mansour, head of research at Cairo-based CI Capital, said by phone. “Their willingness to support the transition government with cash supports foreign reserves and the currency, and allows future lifting of capital controls.”

Local Buyers

There were 12 trades covering $61 million of Egypt’s debt in the week through July 5, bringing the total outstanding to 953 contracts covering a net $355 million, according to Depository Trust & Clearing Corp. data.

The benchmark EGX 30 Index advanced 0.7 percent to 5,325.14 as 25 stocks rose. The measure jumped 3.3 percent yesterday, before the aid announcement. About 510 million Egyptian pounds ($73 million) of shares traded today, compared with a daily average of 391 million pounds in the past year.

Local investors were net buyers today while non-Arab foreign investors were net sellers for a seventh day, reducing their holdings by 60 million pounds, according to Egyptian Exchange data. That takes their sell-off over the period to about 378 million pounds.

EFG-Hermes Holding SAE, the country’s biggest investment bank, increased 3.4 percent to 8.91 Egyptian pounds, the highest since June 2. Cairo-based private-equity firm Citadel Capital SAE rose 2.8 percent to 3.34 pounds, the highest since May 22, after its first-quarter loss narrowed. The stock exchange closed an hour earlier, at 1:30 p.m. Cairo time, for the Islamic holy month of Ramadan, which started today.

Foreign Reserves

The pound, whose movement on the interbank market is controlled by the central bank, strengthened 0.2 percent to 7.0092 a dollar, according to prices compiled by Bloomberg. The gain came after the central bank sold $38.8 million at a currency auction at a weighted average price of 6.9992 pounds compared with 7.0097 at a similar sale July 8.

The regulator started those sales to limit banks’ access to dollars in order to stem a drop in foreign reserves, which fell to $14.9 billion last month.

Saudi Arabia offered $5 billion, including $1 billion in cash, $2 billion of petroleum products and gas, and a $2 billion deposit with the central bank. The U.A.E. package includes a $1 billion grant and a $2 billion interest-free deposit with the Egyptian central bank. Kuwait said it would provide $4 billion after the stock market closed.

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